General and Specific Environment Conditions on Gambling in Australia - Case Study Example

Management and Evaluation Analysis Case Study xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Australia Gambling Industry xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Institution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Introduction Gambling in Australia has increased tremendously over the past 40 years. Increase in the number of gambling activities has been contributed mainly by establishment of totalisator agency board (TAB) and the Lotteries commission. In around 1994, the industry received considerable expansion following introduction of electronic gaming machine. Policies and laws governing gambling has continually evolved since colonization. Gambling industry in Australia mainly comprises of lotteries and lottery products, racing, electronic gaming machine in clubs and hotels, wagering among other forms. According to research findings, the rate of gambling participation does not seem to increase in the past five years. It has been observed that the industry no longer attracts a large group of the population instead has consistently registered heightened expenditure on the gambling activities that are already in existence. Global financial crisis among other harsh environmental factors have impacted greatly on Australia’s gambling industry. Gambling consumers have been forced to cut down on luxuries and other discretionary spending and as a result, providers of gambling services have witnessed significant decline on annual incomes. Other countries such as Las Vegas, Macau and Japan have also experienced the same kind of trend in reduction in the revenues obtained in the gambling industry. In addition to this, suppliers of the industry have not been left out by the downstream trend in terms of revenues and most have been forced to redefine their future profit forecasts. This essay seeks to evaluate the general and specific environment conditions affecting the gambling industry in Australia. It will also seek to find out how the already existing industry is attractive to new entrants and what can be incorporated to make it more effective. It will also analyze another organization in Australia undergoing similar circumstances (Hawke 2000). General and Specific environment conditions on gambling industry The environment of an organization consists of the external factors of that influence performance and decision making process of an organization. Environmental factors can be classified by either from the source such as social, political, technology and economic or by proximity such as the task environments and the micro-environments (Neuman 2003). I. The government: The responsibility of regulation and implementation of responsible gambling in Australia is by the Minister for Gambling. Commercial gambling is regulated by the Independent Gambling Authority (IGA). Gambling in Australia is considered one of the greatest contributors of state revenue. On the other hand the same government that taxes gamblers also takes part in contributing towards gambling for instance in to the Gambler Rehabilitation Fund and other associations involved in problem gambling. II. Competition: The gambling industry in Australia has continually received massive competition from other entertainment industries in the region. Originally, gambling was highly opposed by many people during its introduction. However, many have embraced it and actually participate in it more so due to establishment of a wide range of gambling products (Slater and Olson 2002). III. Globalization: With the ever growing dynamic trends, the gambling industry is constantly threatened by potential new entrants and products substitutes. The industry has shown an upstream trend in terms of returns and this has contributed in attracting new players in the industry hence increased number of products. IV. Technology: Introduction of electronic gambling machines is considered as one of the greatest achievements of the gambling industry in Australia. Majority of the gamblers go EGM since it is more interesting. Besides this, research has indicated that the rate has also been boosted following introduction of EGM in hotels, Casinos and clubs. Advances in technology and communication has enhanced distance trading whereby the company is able to trade its products in other parts of the world in a cost and time effective manner. Porter’s 5 forces model 1. Rivalry: As opposed to the conventional economic models where competition could render a company’s profits nil, nowadays competition is a healthy game and companies are able to obtain a competitive advantage over their competitors. Economists use industry concentration indicators to measure rivalry among organizations. If the concentration is high, it is more likely that the market share is mostly dominated by large firms. A market share with fewer players indicates that competition is less and it is close to becoming a monopoly. Low concentration ratio shows a market with many rivals with none having significance in the market share. Low industrial rivalry among firms shows discipline which may be as a result of either good competitive history or compliance with a code of conduct which is generally well understood. There are several strategies that an organization can apply in order to gain a market advantage against its rivals. Lowering or raising product or services to temporarily attain a market advantage. Implementing innovation by improving its product differentiation in terms of features and the manufacturing process itself. Enhancing relationships with suppliers by setting high quality standards for suppliers to meet with regard to price and product specification. 2. Substitute’s threats: According to the Porter’s model, substitutes are those products produced by other firms in the same industry. Economists argue that threats of substitutes will always come up every time the product price changes hence the demand is affected. 3. Buyer power: A strong buyer power leads to monopsony whereby the market is flooded by suppliers while there is only one buyer. Prices of commodities are determined by buyer under such kind of market conditions. 4. Supplier power: Any industry involved in manufacturing requires input of raw materials such as components, labor and other supplies. Powerful suppliers have the ability to impact on producing industries in the sense that they sell their raw materials at high prices in order to realize high profits. 5. Entry barriers and new entries threats: In addition to receiving considerable threat from already existing rivals, a firm may also experience competition from potential entrants into the industry. Theoretically, any firm has the right to enter or exit the industry at any time. However, reality provides a different approach to this rule. Industries have developed rules that inhibit them from rivalry by new entrants and enable them to maintain high profit margins. These are referred to as barriers to entry. Examples of such barriers include the government which regulates industrial competition by granting of monopoly. Proprietary knowledge and patents might also act as restrictions to entering into an industry. Another form of restriction is asset specificity where a new entrant is required to specialize in specific technology or equipment. Economies of scale also inhibit a firm form entering into an industry (Siaw and Yu 2004.) It is quite clear that participation rate of gambling in Australia has been declining in the past few years. In this case it will not be advisable for a new firm specializing in gambling to enter into the industry. Evidence has shown that household disposable income (HDI) utilized on gambling has fallen to half especially in Western Australia. This has been contributed mainly by increase in cost of living which has in turn forced the general population to cut down on luxuries ( Adams 2008). Advice to the gambling industry Organization in the gambling industry are affected by the global economic crises in a big way and also by the implementation of some government policies that a gambler must first declare how much he/she is prepared to lose before they start playing. These industries therefore need to have some management approaches that are towards improving the organizational performance. I would advice these organizations to implement the following; Value Based Management This provides accurate and unambiguous metric/value upon which the whole organization can stand. This is attributed by the fact that the value of an organization is determined by its discounted future cash flows. When an organization invests capital at returns that exceed the cost of that capital, then the organization acquires considerable value. When using Value Based management, the company will concentrate on how to use them in making strategic and operating decisions. When this is executed properly it streamlines the management processes so that they can concentrate on management decision making on the key drivers values. It focus on distinct decision making in all levels of management calling for managers to use value based performance metrics for making better decisions. It encompasses managing the balance sheet and short term perspectives (Marks 2005). Corporate Governance Corporate governance is about effectiveness of the governing body. This need to be distinguished from management; as for management runs the organizations while the governing body ensures that it is being run well and is headed towards the aims and goals. In this case, there has to be an overseer of the management leading to ensuring that the corporate strategy is translated to policies and plans for management actions and also ensuring accountability by the management. There has to be a clear balance between conformance and performance responsibility to increase and improve performance (Bhagat & Black1999). When this is taken into consideration, all the operations in the organization are harmonized and so the end results are improved. Risk Strategic risk is companies most important but unfortunately the least understood by directors. In the case of financial crises many organizations failed to understand the exposure to risk that their firms faced. There has to be preparations ready for response to threats from outside the organization like the competitors, government tariff barriers and financial controls just to mention but a few. Impact of current economic trends within the tourism sector It is quite evident that not only has the financial crisis that began in the US affected the gambling industry but also it has widely affected the tourism industry within Australia. For instance, most of the affected group within the field of tourism was big hotels and lodges. A good example is Sydney Marriott Hotel, the hotel could not handle the large numbers of employees within its system therefore, and there was increase in unemployment level which automatically resulted to decline in revenue collection. Although, the hotel is currently began its recovery program, unemployment is still within the hotel since lack of funds and high interests rates being offered by banks (Stiglitz 2008). Further, Sydney Marriott Hotel, hotel is facing enormous problem in trying to restore their balance sheet. Stiglitz (2008) asserts that, the hotel seems to increase risks due to various policy regulating financial issues are failing to regulate derivatives rather, the use of the various monetary policies within macroeconomic management is considered as an unstable asset which may result to inflation. The effect created by new techniques during the global financial crisis with the intention of managing risks, clearly undermines the ability of the hotel to work towards prevention of such an occurrence within the tourism industry (Stiglitz 2008). Stein (2007)maintains that, the global financial crisis have forced the hotel investment plans scale back due to the various observed high levels of perceived uncertainties and risks as a preventive measure in the development of resilience in case of future re-occurrences regarding both economic and financial conditions. Some of preventive measures undertaken by the hotel include; cancellation or postponement of investment projects, layoffs and divestments (Stein 2007). The preventive measures have mainly been considered due to lower hotel and the general tourism sector profit curtails and tighter condition without Australian credit conditions. Finally, the gloomy evolution of the tourism industry market which entails the increased looming sharp economic crisis globally has a continuous negative effect on the tourism industry. This is because every individual across the globe is feeling the negative effect brought by the global recession, thus cut down on prestigious expenses such as travel and tours to maximize his expenses on the basic essential goods and services (Stein 2007). Therefore, Sydney Marriott Hotel fears for heightened appreciation of the risks which automatically entails reduction in the hotel investment. Conclusion Evidently, the gambling industry in Australia has been under threat with the global economic crisis. It is therefore paramount for the key players in the industry to acquire new strategic plans to keep the industry alive and to increase its boundaries. Contribution of the government cannot be overemphasized since its efforts in supporting the industry are quite clear. It is also recommendable for the industry to merge with other entertainment industries such as the producers of beverages and tobacco. Research has indicated that majority of the gamblers will in most cases indulge in smoking or drinking in the process of gambling. Other means of boosting the industry will be venture into more technology based activities which will attract more consumers of the products and services. It is important for the industry to develop barriers to entry such that a monopoly is established for best outcomes. References Adams, P. 2008. Gambling, freedom and democracy. New York: Routledge. and firm performance". Business Lawyer 54, 921-963. Bhagat, S., Black, B.S. 1999 "The uncertain relationship between board composition Family and Community Services Hawke, A. 2000.Measuring the Impact of Gambling: An Economists View. HawkeInstitute Working Paper. Series No. 4. Marks 2005I ncome poverty, subjective poverty and financial stress’ Report by the Melbourne Institute of Applied Economic and Social Research for the Department of Neuman, W.2003. Basics of Social research: Quantitative and Qualitative Approaches. Boston: Allyn and Bacon. Siaw, I. and Yu, A. 2004. "An Analysis of the Impact of the Internet on Competition in the Banking Industry, Using Porter's Five Forces Model". International Journal of Management 21, no. 4: 514–524. Slater, S. and Olson, E.2002. "Fresh Look at Industry and Market Analysis." Business Horizons 45. no. 1, (2002, January/February): 15–23. Stein, E, 2007. The cyclical nature of North–South FDI flows. Journal of International Money and Finance. Vol. 26 (1): 104–130. Stiglitz, J. 2008. Towards new global economy compact: principle for addressing the current global financial crisis. A communication to the United Nations General Assembly. New York. United Nations. Read More